He said: "I can't just promise to people that I can just wave a magic wand and be able to spend more and tax less.

"I cannot make commitments now for three years' time. I won't do that, it wouldn't be credible."

Mr Balls said voters faced a choice between higher public sector pay or tackling rising unemployment.

"George Osborne clearly hoped he would be able to have tax cuts later in the parliament and rising public pay. It's not going to happen because of his failures," he said.

"People might expect me to come along and say 'well of course we will back higher pay'.

"It's a question of priorities. I can't say to private and public workers or to the country that Labour would put higher pay above jobs when unemployment is so high.

"We've got to be honest with people about the choices they face."

Mr Balls said the economy was "stagnating" because of Mr Osborne's policies.

Referring to the string of credit downgrades in the eurozone last night, he said the Chancellor "won't listen to ratings agencies telling the eurozone austerity is self defeating".

Any government would have had to be "tough on pay", he said, adding: "It's going to be tougher because of George Osborne's mistakes but I can't promise to reverse that now."

In a speech to the Fabian Society on Saturday Mr Balls said Labour faced "a big task" to regain economic credibility and win back public trust.

He acknowledged that Labour should have been "clearer" before the 2010 general election that it would impose spending cuts and tax rises if re-elected.

His comments, however, have angered unions as it appeared Labour was effectively accepting the public sector pay freeze.

Mark Serwotka, general secretary of the Public and Commercial Services union, described Mr Balls's comments as "hugely disappointing".

He said: "Instead of matching them on the cuts they should be articulating a clear alternative and speaking up for public sector workers and ordinary people in society."

Bob Crow, general secretary of transport union RMT, said: "By lining up with the Tory-led coalition on the assault on public sector pay, Ed Balls will today sign Labour's electoral suicide note as he alienates his core voters in their millions.

"The idea that the public sector staff who make this country tick are going to head to the polls and vote for a Labour Party that supports up to a 20% cut in their living standards, while the spivs and speculators who caused the crisis are laughing all the way to the bank, is a sick joke and a total betrayal of trade union members who fund the party."